ethics in merger & acquistiion.pptx
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A transaction where twofirms agree to integrate
their operations on arelatively co-equal basisbecause they haveresources and capabilitiesthat together may create astronger competitiveadvantage.The combining of two ormore companies, generallyby offering thestockholders of one
company securities in theacquiring company inexchange for the surrenderof their stockExample: Company A+
Company B= Company C.
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A transaction where onefirms buys another firmwith the intent of moreeffectively using a corecompetence by making theacquired firm a subsidiary
within its portfolio ofbusinessIt also known as a takeoveror a buyoutIt is the buying of one
company by another.In acquisition twocompanies are combinetogether to form a newcompany altogether.
Example: Company A+Company B= Company A.
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MERGER ACQUISITION
i. Merging of two organization
in to one.
ii. It is the mutual decision.
iii. Merger is expensive thanacquisition(higher legal cost).
iv. Through merger shareholders
can increase their net worth.
v. It is time consuming and the
company has to maintain so
much legal issues.
vi. Dilution of ownership occurs
in merger.
i. Buying one organization by
another.
ii. It can be friendly takeover
or hostile takeover.
iii. Acquisition is less expensive
than merger.
iv. Buyers cannot raise their
enough capital.v. It is faster and easier
transaction.
vi. The acquirer does not
experience the dilution ofownership.
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WHY IS IMPORTANT PROBLEM WITH MERGER
i. Increase Market Share.
ii. Economies of scale
iii. Profit for Research and
development.iv. Benefits on account of
tax shields like carriedforward losses orunclaimeddepreciation.
v. Reduction ofcompetition.
i. Clash of corporate
cultures
ii. Increased businesscomplexity
iii. Employees may be
resistant to change
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WHY IS IMPORTANT PROBLEM WITH ACUIQISITION
i. Increased marketshare.
ii. Increased speed tomarket
iii. Lower risk comparingto develop newproducts.
iv. Increaseddiversification
v. Avoid excessivecompetition
i. Inadequate
valuation of target.
ii. Inability to achieve
synergy.
iii. Finance by taking
huge debt.
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Generally, a company with the track
record should have a less profit
earning or loss making but viable
company amalgamated with it tohave benefits of economies of scale of
production and marketing network,
etc. As a consequence of this merger
the profit earning company survives
and the loss making company
extinguishes its existence. But inmany cases, the sick companys
survival becomes more important for
many strategic reasons and to
conserve community interest. The law
provides encouragement through tax
relief for the companies that are
profitable but get merged with the
loss making companies. Infect this
type of merger is not a normal or a
routine merger. It is, therefore, called
as a Reverse Merger.
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Division of a Company
with two or more
identifiable business units
into two or more separate
companies.
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MERGER REVERSE MERGER
Combining of two ormore commercialorganizations intoone in order to
increase efficiencyand sometimes toavoid competition.
As a commercial
term, it means when a
Healthy Company (in
terms of size, capitalor listing status)is
merging in a Weak
Company (in terms of
size, or unlisted).
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Learn from mistakes of others
Define your objectives clearly
Complete strategy to achieve goal.
SWOT analysis for the merged business - amust
Conservative attitude necessary atevaluation deskstrong arguments to support
projectPick holes in strategy to get the best
Will merged units be able to work atefficient / ideal level?
Acquire expertise to interprete changes
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The purpose for an offerorcompany for acquiring
another company shall be
reflected in the corporate
objectives. It has to decide the
specific objectives to beachieved through acquisition.
The basic purpose of merger
or business combination is to
achieve faster growth of the
corporate business. Faster
growth may be had through
product improvement and
competitive position. Other
possible purposes for
acquisition are short listed
below: -
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(1)Procurement of supplies:
(2)Revamping production facilities:
(3) Market expansion and strategy
(4) Financial strength:
(5) General gains:
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(6) Own developmental plans
(7) Strategic purpose:
(8) Corporate friendliness:
(9) Desired level of integration
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(A) Verticalcombination
(B) Horizontalcombination
:
(C) Circularcombination
(D)Conglomeratecombination
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In other words, in vertical
combinations, the mergingundertaking would be either a
supplier or a buyer using its
product as intermediary
material for final production.
The following main benefitsaccrue from the vertical
combination to the acquirer
company i.e.
it gains a strong position
because of imperfect marketof the intermediary products,
scarcity of resources and
purchased products;
has control over products
specifications.
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It is a merger of two competing
firms which are at the same
stage of industrial process. The
acquiring firm belongs to the
same industry as the target
company. The mail purpose of
such mergers is to obtaineconomies of scale in production
by eliminating duplication of
facilities and the operations and
broadening the product line,
reduction in investment inworking capital, elimination in
competition concentration in
product, reduction in advertising
costs, increase in market
segments and exercise bettercontrol on market.
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Companies producing
distinct products seekamalgamation to share
common distribution and
research facilities to obtain
economies by eliminationof cost on duplication and
promoting market
enlargement. The acquiring
company obtains benefits
in the form of economiesof resource sharing and
diversification.
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It is amalgamation of twocompanies engaged in unrelated
industries like DCM and Modi
Industries. The basic purpose of
such amalgamations remains
utilization of financial resources
and enlarges debt capacitythrough re-organizing their
financial structure so as to service
the shareholders by increased
leveraging and EPS, lowering
average cost of capital and
thereby raising present worth of
the outstanding shares. Merger
enhances the overall stability of
the acquirer company and creates
balance in the companys total
portfolio of diverse products and
production processes.
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As we all knowcombination of twocompanies effect numberof people.
So at the time ofmerger or acquisitiontheir emotions and othersocial things should betake in to mind . may be
those things are notcompel by law to follow.But our social valuescompel more than law,these are called ETHICS
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Ethics is not an exact science. People define Ethics in
accordance with their own set of values which differ
depending on time, place and culture. Webster's defines Ethics
as "the discipline dealing with what is good and bad or rightand wrong or with moral duty and obligation." The word
derives from the Greek word meaning "moral," a Latin word
with roots in "mores" or "customs"in other words the values
held by society.
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Managerialmischief.
Moral
mazes
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Madsen and Shafritz, in theirbook "Essentials of Business
Ethics" explain that"managerial mischief" includes"illegal, unethical, orquestionable practices ofindividual managers ororganizations, as well as the
causes of such behaviours andremedies to eradicate them."There has been a great dealwritten about managerialmischief, leading many tobelieve that business ethics ismerely a matter of preaching
the basics of what is right andwrong. More often, though,business ethics is a matter ofdealing with dilemmas thathave no clear indication ofwhat is right or wrong.
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Moral mazes. The
other broad area ofbusiness ethics is"moral mazes ofmanagement" andincludes the numerous
ethical problems thatmanagers must dealwith on a daily basis,such as potentialconflicts of interest,
wrongful use ofresources,mismanagement ofcontracts andagreements, etc.
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Mergers and acquisitions
involve a wide array ofethical questions, some of
which relate to the degree
of "fit" between the value
systems of the merging
firms. A mismatch can
sometimes lead to serious
problems, such as when
one firm invests heavily in
employees and the otherfocuses mainly on
shareholders or customers
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A secondary category of ethical issues, she notes,
involves questions arising from the actual M&A;
transaction. Some really vexing issues surface in the
course of these deals. Management must decide, for
example, when to disclose plans for the merger, what
restrictions to place on insider use of information,
what counts as fair and proper accounting and
taxation,
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During a merger and acquisition many employees
lose their jobs. Because of combination of
companies many of them become obsolete. So at
that time it is ethical responsibility ofmanagement to try to maintain their living
standard either by giving them compensation or
by creating new job opportunities for them
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Other major ethical issue during the cross nationalmergers and acquisitions is the legal policies ofreceiving country. Many of the rules are differentin different countries so it is ethical as well aslegal responsibility of company to take care ofthem. Like the taxation rules of country, rulesregarding child labor etc. For example, the legaldefinition of 'redundant employees' varies widelyas do requirements for severance arrangements.In the face of such differences, managers of themerging companies have to wrestle with what is
fair to the different sets of employees and whatwill help build a cohesive organization with asingle set of ethical standards going forward.
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The two countries are different from each other at
cultural point of view. So it is ethical duty of
companies to take care of cultural values of both
companies. For example a U.S company enters in
India via merger have to adopt women dress-code
according to Indian cultural that may be different
from U.S.A. They also have to take care of working
hours of women because Indian culture hardly
allows women to work at night. So above points arenow not legally bond but these are important from
ethical point of view.
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Sometimes companies enter into such a agreement
which intensely or not intensely creates monopoly in
the concern market. These type are agreement are
void in the eye of law also but every law has some
lose ends so companies take advantages of those to
enjoy the monopoly it is unethical in nature and
should be avoided because it directly resulted as
consumer exploitation. Companies enter in M&A to
reduce competition but beside that they should take
care about the consumers also.
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Companies have goal to maximize the wealth ofshareholders and the decision about a companys merger
or acquisition starts affecting the value of shares months
before the actual transaction. The affect may be positive
or negative so it is companys ethical duty to minimize
the negative impact on the prices of shares to protect the
wealth of shareholders
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Sometimes companies take secret the
information about merger and acquisition not
only from the outsiders but also from the
employees. So at the time of transaction there is
a sudden shift for employees which may cause aslow morale in them. It will have negative effect
for both employees and company so company
have to decide about the time of disclosure. So
employees can be mentally prepare for thechange.
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The other main area of concern is about how touse the resources of the host country. Company
should take care about that the use of natural
resources. Try to use them in such a way that they
are beneficially for both not for only the company.We can take example of such a unethically use of
resources from history. East India company use
Indian natural resources for the benefit of Britain.
But in todays world this kind of behavior is
unethical so it is ethical responsibility of company
to fair use of natural resources.
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Sometimes companies enter in a new market throughmerger and acquisition and starts disturbing the local orsmall scale industries. Because large companies have fairamount of financial resources and they are enjoying
economies of large scale so small scale industries areunable to stand in front of them. Taking advantages of thisMNCs try to vanish the local competition to enjoymonopoly. This may be profitable but it is unethical
because it may be result as unemployment at large scale
and consumer exploitation in long run. So it is also ethicalresponsibility of companies that when they enter in asmall market through merger and acquisition they shouldalso take care about the local competition.
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When organizations merge there is a
corresponding meshing of their compliance with
applicable regulations. More often than not,
organizations have achieved different levels of
compliance, and the merged organization needsa strategy to bring the laggard up to par (or both
up to par, if that is the case). In some instances,
the M&A may bring the need to comply with new
regulations, and that will require , planning,and execution.
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There should be proper communication with
the employees to help them to understand
about new management and their new role
with in the company. Management should
Implement change processes thorough
communication to all employees. This will
help employees to understand new
managerial rules and regulation.
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Inform customers of both entities on the
need and impact of the merger so they can
easily understand what will be the effect on
them this is beneficial for both company and
the customers. Because sometimes the loyal
customers of a company lose their faith in
company after changes in company name or
in any other manner so it is both ethic and
beneficial to give information to consumers
about such deals
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It is the human nature that the person give
much importance to the thing that is related
to him. In the same way buyer company give
more emphasis to its old employees rather
than the new ones. But the manager should
try to be non-discriminatory in nature.
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Some time a company some special services
or bonuses to the employees but after
merger the dominating company stops this
type of policy. Which creates feeling of
dissatisfaction among them because they
consider it as unethical behavior. So
management of new company should respect
the rights of employees they are already
enjoyed or try to remove them with proper
planning and consultancy.
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Company should not use
illegal ways to compelsome other company to
enter in deal. Normally
bigger companies use
their dominating
position to force the
smaller ones to enter in
acquisition or merger
deals. Mostly coercion
about capturing theirmarket or bribery to
upper management are
the common ways which
are not ethical andle al in nature.
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Revenue deserves more
attention in mergers; indeed, a
failure to focus on this important
factor may explain why so many
mergers dont pay off. Too many
companies lose their revenue
momentum as they concentrate
on cost synergies or fail to focuson post merger growth in a
systematic manner. Yet in the
end, halted growth hurts the
market performance of a
company far more than does afailure to nail costs
Some of the reasons why
Mergers & Acquisitions have
failed in recent times are as
follows :-
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>> Culture shock
>> 2+2>4 attitude
>> No plan
>> Poor integration:
>> People trouble:
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>> Lack of enthusiasm
>> Who needs you
>> Poor decisions:
>> Ego clashes
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